The Thought That Counts: Towards a Rational Theory of Gift-Giving

Abstract

From an economic perspective, the practice of gift-giving in social rela- tionships makes little sense due to the ineffciencies that arise from commonly mismatched gifts and preferences. This paper addresses the frequency of non- monetary gifts compared to more efficient cash transfers. While there is a vast literature concentrated on this cultural phenomenon, we examine a model based on the idea that the sentimental value of a gift can be measured in terms of the time and energy the donor spent to select a desirable gift for the recipient. We demonstrate that under a variety of circumstances, individuals choose to give non-monetary gifts over cash in order to signal to the recipient that they exerted this effort.